The back story: AcelRx Pharmaceuticals (ACRX) is a small-cap specialty pharma company developing pain medications that has a Phase III drug trial due out this summer, the kind of catalyst I like to get ahead of by four to six weeks. I made my first move on this stock on June 29, buying 3,000 shares at $2.10, planning to buy 10,000 shares total as the big event gets closer.

The plan: I’m less concerned with catching the low or selling at the actual high, and more concerned with the timing of a situation like this. I like to average in slowly, eliminating some of the volatility; I’m trying to pick spots where the price is moving sideways.

The follow-through: Monday, with the stock sitting near lows and at support levels, I added 2,000 shares at $2.15 each. Now halfway into the position I want, I don’t plan to set my exact goals or a stop-loss until I have accumulated the full 10,000 shares.

That said, I see a potential upside of about 30 percent, and I will set my stop at 10 percent. That means I’d like to sell at close to $2.70, if everything goes right, and I’d stop out around $1.90.

The plan from here: Obviously, I’m looking to complete my purchase, planning to sell the stock roughly a week before the catalyst event. One thing I particularly like about the ACRX situation is that there is a second catalyst for the stock, a Food & Drug Administration (FDA) approval date set for October.

Having two catalysts can reduce risk and volatility; people are more interested in owning or trading a stock with two pending news events and the second catalyst creates potential upside even if the first one turns out to be negative. It’s a good situation to be averaging into waiting for the stock to rise as the news date approaches.

#-#-#

   Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He is an event-based trader, who prefers low-priced and small-cap biotech stocks.  At the time this article was published on RagingBull.com, he held 5,000 shares of ACRX  and was planning to purchase 5,000 more as described in this commentary; he had no other options or open orders in the stock. He has traded ACRX many times in the past, most recently a day trade on May 11 for a small profit.

Author: Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

Learn More

Leave your comment

Related Articles: